1968 (6) TMI 11 - HC - Income Tax

Firm of chartered accountants were the assessee s tax consultants - sum paid by the assessee as professional fees to its tax consultants - it is an admissible deduction under section 10(2)(xv) of the IT Act, 1922

Summary

Issues Involved:
1. Whether the sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an admissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Admissibility of Professional Fees as Deduction under Section 10(2)(xv):

The assessee, a limited company engaged in the transport of cargo, claimed a deduction of Rs. 16,000 paid to its tax consultants, Messrs. K. C. Bose & Co., for services rendered over twelve assessment years. The Income-tax Officer disallowed Rs. 8,000 of this amount, deeming it related to appeal proceedings and not allowable as a deduction. The Appellate Assistant Commissioner upheld this decision.

Before the Tribunal, the assessee argued that the consolidated fee of Rs. 2,000 per year was paid irrespective of appeals, and thus, the entire amount should be deductible. The Tribunal agreed, citing commercial expediency and the immateriality of whether the fees were for proceedings before the Income-tax Officer or appellate authorities. The Tribunal held that the entire Rs. 16,000 was an admissible deduction under section 10(2)(xv).

The High Court examined whether the expenses for professional fees were laid out wholly and exclusively for the purposes of the business. The court referred to the English rule 3(a) and compared it with section 10(2)(xv) of the Indian Income-tax Act, noting the legislative shift from "for the purpose of earning such profits or gains" to "wholly and exclusively for the purpose of such business, profession or vocation."

The court discussed the differing views in Smith's Potato Estates Ltd. v. Bolland, where the majority held that costs incurred in tax proceedings were not deductible as they were not wholly and exclusively for trade purposes. In contrast, Viscount Simon and Lord Oaksey opined that such expenses were for the purpose of trade, as they aimed to correct tax assessments and increase funds available for business.

The High Court preferred the latter view, supported by the Supreme Court's interpretation in Commissioner of Income-tax v. Malayalam Plantations Ltd. and Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax. These cases emphasized that expenses incurred for commercial expediency and indirectly facilitating business operations were deductible.

The court also distinguished the Supreme Court's decision in Travancore Titanium Products Ltd. v. Commissioner of Income-tax, which dealt with wealth-tax and not income-tax. The court concluded that income-tax expenses were incurred in the assessee's capacity as a trader and were deductible.

Finally, the court referred to Mannalal Ratanlal v. Commissioner of Income-tax, distinguishing it on the basis that the current case involved expenses for protecting business income, not the payment of income-tax or interest on borrowed money for tax payment.

Conclusion:

The High Court concluded that the sum of Rs. 16,000 paid by the assessee as professional fees to its tax consultants was an admissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal's decision was upheld, and there was no order as to costs.

Separate Judgments:

CHATTERJEE J. - I agree.